Development Centre

Chinese Economic Performance in the Long Run: The Outlook for the Next Quarter Century

 

The Outlook for the Next Quarter Century


China is still a relatively poor country. In 2003 its per capita income was only 17 per cent of that in the United States, 23 per cent of that in Japan, 28 per cent of that in Taiwan and 31 per cent of that in Korea. Countries in this situation of relative backwardness and distance from the technological frontier have a capacity for fast growth if they mobilise and allocate physical and human capital effectively, adapt foreign technology to their factor proportions and utilise the opportunities for specialisation which come from integration into the world economy. China demonstrated a capacity to do this in the reform period and there is no good reason to suppose that this capacity will evaporate.

 

It is likely that the catch-up process will continue in the next quarter century, but it would be unrealistic to assume that the future growth trajectory will be as fast as in 1978-2003. In that period there were large, once-for-all, gains in efficiency of resource allocation in agriculture, an explosive expansion of foreign trade and accelerated absorption of foreign technology through large-scale foreign direct investment. The pace of Chinese progress will slacken as it gets nearer to the technological frontier. I have assumed that per capita income will grow at an average rate of 4.5 per cent a year between 2003 and 2030, but that the rate of advance will taper off over the period. Specifically, I assume a rate of 5.6 per cent a year to 2010, 4.6 per cent between 2010 and 2020 and a little more than 3.6 per cent a year from 2020 to 2030. By then, in our scenario, it will have reached the same per capita level as western Europe and Japan around 1990, when their catch-up process had ceased. As it approaches this level, technical advance will be more costly as imitation is replaced by innovation. However, by 2030 the technical frontier will have moved forward, so there will still be some scope for catch-up thereafter.

 

With such a performance, China should overtake the United States as the world’s biggest economy before 2015 and by 2030 account for about a quarter of world GDP. It would have a per capita income like that of western Europe in 1990. Its per capita income would be only one third of that in the United States, but its role in the world economy and its geopolitical leverage would certainly be much greater.

 

Reasons for Taking a Long View
Chinese Performance from the Ninth to the Eighteenth Century
Institutional Differences between Europe and China
The Adverse Impact of Internal Disorder and Imperialist Intrusions
The Maoist Transformation and its Impact
Reformist Policies since 1978 Produced Three Decades of Dynamic Growth

The Policy Problems of Rapid Growth are Changing

 

 

 

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